Taxation Guide for an Individual – Here are all the necessary deductions
Upstox
10 min read • Updated: April 24, 2024, 1:55 PM
Summary
The Income Tax Department has listed down various deductions under Chapter VI A to promote savings and investments among individuals. These deductions can reduce your tax burden and elevate your income. Section 80C is the most popular tax deduction there are several other important deductions available that you can take advantage of.
Let's learn about these deductions to understand how they can benefit you.
Old vs New Regime
To understand the tax deductions available under the Income Tax Act, we'll first learn the different tax rates in the old and new tax systems.
Old Income Tax Slab Rates
| Income tax slab | Income tax rates for taxpayers aged below 60 years | Income tax rates for taxpayers aged 60 years or more, but below 80 years | Income tax rates for taxpayers aged 80 years or more |
|---|---|---|---|
| Up to Rs 2,50,000 | Nil | Nil | Nil |
| Rs 2,50,001 to Rs 3,00,000 | 5% | Nil | Nil |
| Rs 3,00,001 to Rs 5,00,000 | 5% | 5% | Nil |
| Rs 5,00,001 to Rs 10,00,000 | 20% | 20% | 20% |
| Above Rs 10,00,000 | 30% | 30% | 30% |
Old Income Tax Slab Rates
| Income Tax Slab | Income Tax Rate |
|---|---|
| Up to Rs 2,50,000 | Nil |
| Rs 2,50,001 to Rs 5,00,000 | 5% |
| Rs 5,00,001 to Rs 7,50,000 | 10% |
| Rs 7,50,001 to Rs 10,00,000 | 15% |
| Rs 10,00,001 to Rs 12,50,000 | 20% |
| Rs 12,50,001 to Rs 15,00,000 | 25% |
| Above Rs 15,00,000 | 30% |
Tax Deductions
Tax deductions enable you to reduce your taxable income by subtracting specific expenses and investments. This, in turn, lowers your overall tax liability. The Income Tax Act outlines various sections detailing these deductions.
Have a look at the most important tax deductions available in India.
| Section of the Income Tax Act | Particulars | Maximum deduction allowed | Tax regime applicable |
|---|---|---|---|
| 24(b) | Interest on home loans for self-occupied or let-out properties. taken for construction, purchase, repair, or reconstruction | Upto Rs 2,00,000 for home loans taken on or after April 1, 1999 for construction or purchase of self-occupied properties | The deduction on interest paid on home loans for self-occupied properties is not available in the new tax regime |
| Rs 30,000 for home loans taken on or after April 1, 1999 for repairs of self-occupied properties, or taken before April 1, 1999 | |||
| Actual value of interest paid on home loans taken for construction, purchase, repair, or reconstruction of let-out properties | |||
| 80C | Investments made in various schemes like Public Provident Fund (PPF). National Savings Certificate (NSC) etc., as well as different expenses like life insurance premium, home loan principal repayment, tuition fees, etc. | Total of Rs 1,50,000 (including deductions claimed u/s 80CCC and 80CCD(1)) | Available only in the old tax regime |
| 80CCC | Contribution towards any annuity plan offered by LIC or any other pension scheme | Total of Rs 1,50,000 (including deductions claimed u/s 80C and 80CCD(1)) | Available only in the old tax regime |
| 80CCD(1) | Any investments in specified pension schemes of the central government | Total of Rs 1,50,000 (including deductions claimed u/s 80C and 80CCC) | Available only in the old tax regime |
| 80CCD(1B) | Payments made to any pension schemes of the central government, excluding those covered u/s 80CCD(1) | Rs 50,000 | Available only in the old tax regime |
| 80CCD(2) | Employer's contribution to a pension scheme of the central government | 14% of salary if the employer is the central government, and 10% of the salary if the employer is a state government, a Public Sector Undertaking (PSU) or other entities | Available in both old and new tax regimes |
| 80D | Premium payments made for health insurance (taken for self, spouse, dependent children, or parents) and expenses incurred for preventive health checkups | Rs 25,000 (or Rs 50,000 if the policyholder is a senior citizen) | Available only in the old tax regime |
| 80DD | Expenses incurred for maintenance and medical treatment of a dependent person who is disabled | Rs 75,000 (or, in case of severe disability, Rs 1,25,000) | Available only in the old tax regime |
| 80DDB | Expenses incurred for medical treatment of specified diseases for self or any dependent | Rs 40,000 (or, in the case of senior citizens, Rs 1,00,000) | Available only in the old tax regime |
| 80E | Interest repayments made on education loans taken for higher education of self or relatives | Total interest paid during the financial year | Available only in the old tax regime |
| 80EE | Interest on home loans below Rs 35 lakh, sanctioned in FY 2016-17, for the purchase of a house property whose value does not exceed Rs 50 lakh | Rs 50,000 | Available only in the old tax regime |
| 80G | Donations made to specified charitable funds and schemes | 100% or 50% of the donation made | Available only in the old tax regime |
| 80TTA | Interest received on savings bank accounts | Rs 10,000 | Available only in the old tax regime |
| 80TTB | Exemption of interest from banks, post offices, etc. Applicable only to senior citizens | Rs 50,000 | Available only in the old tax regime |
| 80U | Self-suffering from disability : – An individual suffering from a physical disability (including blindness) or mental retardation. – An individual suffering from severe disability | -Rs 75,000 -Rs 1,25,000 | Available only in the old tax regime |
Deduction limits under Section 80C, 80CCC, 80CCD(1), 80CCE, 80CCD(1B)
The total deduction limit for investments under certain sections, like 80C, 80CCC, and 80CCD(1), is capped at Rs 1.5 lakhs. Investing in the National Pension System (NPS) allows more deductions of Rs 50,000 under Section 80CCD(1B). This gives a total deduction of up to Rs 2 lakh by investing in NPS contributions.
Here is a quick comparison between investment options that are allowed as deductions under section 80C.
| Investment options | Lock-in period for | Risk factor | Average Interest |
|---|---|---|---|
| ELSS funds | 3 years | High | 12% – 15% |
| NPS Scheme | Till 60 years of age | High | 8% – 10% |
| ULIP | 5 years | Medium | 8% – 10% |
| Senior citizen savings scheme | 5 years (can be extended for other 3 years) | Low | 8.60% |
| Tax saving FD | 5 years | Low | Up to 8.40% |
| Sukanya Samriddhi Yojana | Till the girl child reaches 21 years of age (partial withdrawal allowed when she reaches 18 years) | Low | 8.50% |
| PPF | 15 years | Low | 7.90% |
| National Savings Certificate | 5 years | Low | 7.90% |
Section 80TTA – Interest on Savings Accounts
Section 80TTA deduction can be claimed by all individuals and HUFs other than senior citizens (those above 60 years).
Section 80TTB – Interest From Deposits Held by Senior Citizens
Section 80TTA deduction can be claimed by senior citizens (those above 60 years).
Section 80E – Interest on Education Loan
An individual can deduct the interest they pay on student loans used for higher education. This includes loans for themselves, their spouse, children, or a legally-guarded student. There is no upper limit on the interest amount that can be deducted. An individual can claim this deduction for up to eight years starting from the year the interest payments begin, or until the interest is fully paid off, whichever comes first.
80EE- Interest on Home Loan For First-Time Home Owners
From the 2016-17 fiscal year onwards, individuals who secured a home loan during that year can claim a special tax deduction under Section 80EE. This deduction is available if the property's value is less than Rs 50 lakh and the loan amount does not exceed Rs 35 lakh.
The loan must have been sanctioned between April 1, 2016, and March 31, 2017. In addition to the standard Rs 2 lakh deduction for home loan interest under Section 24, an extra Rs 50,000 deduction is available. This provides substantial tax relief to qualifying homeowners.
Section 80D – Deduction on Medical Insurance Premium
| Policy of - | Deduction for self & family | Deduction for parents | Preventive Health check-up | Maximum Deduction |
|---|---|---|---|---|
| Self & Family(below 60 years) | 25,000 | - | 5,000 | 25,000 |
| Self & Family + Parents (all of them below 60 years) | 25,000 | 25,000 | 5,000 | 50,000 |
| Self & Family (below 60 years) + Parents (above 60 years) | 25,000 | 50,000 | 5,000 | 75,000 |
| Self & Family + Parents (above 60 years) | 50,000 | 50,000 | 5,000 | 1,00,000 |
Under Section 80D of the Income Tax Act, individuals or Hindu Undivided Families (HUFs) can deduct up to Rs 25,000 for health insurance premiums paid for themselves, their spouses, and dependent children. An extra deduction of Rs 25,000 is available for insuring parents under 60 years old, which increases to Rs 50,000 if they're over 60. If both the taxpayer and their parents are aged 60 or above, the deduction limit rises to Rs 1,00,000.
For senior citizens without health insurance, their expenses on medical treatment are also deductible. Payments for premiums should be made through non-cash methods, except for cash payments allowed for preventive health check-ups.
Section 80DD – Deduction for Medical Treatment of a Dependent with Disability
| Disability | Level of Disability | Amount of Deduction |
|---|---|---|
| Severe Disability | 80% or more | Rs 1,25,000 |
| Normal Disability | 40% - 79% | Rs 75,000 |
Taxpayers can deduct expenses for the medical care, nursing, training, and rehabilitation of a disabled dependent, as well as contributions to certain schemes that provide financial support for such dependents. To claim this deduction, a disability certificate from an authorized medical authority is needed.
Dependents include the taxpayer's spouse, children, parents, siblings, or any member of a Hindu undivided family (HUF). The dependent must not have claimed a similar deduction under section 80U in their tax return.
Section 80DDB
| Age | Amount of deduction |
|---|---|
| Less than 60 years | Amount paid or 40,000, whichever is less |
| 60 and above | Amount paid or 1,00,000, whichever is less |
When filing for tax deductions under Section 80DDB for medical expenses, don't forget to subtract any reimbursements you've received from your insurance or employer. Make sure you have a specialist's prescription for the treatment as well. You can find more details in our guide on Section 80DDB.
Conclusion
The old and new tax systems have a difference to understand. The old one lets you take advantage of all existing tax deductions, but the new one limits these benefits a lot. So if you have many deductible investments and expenses, the old tax system may work better for you. But if your portfolio lacks a lot of deductible items, the new tax system could be the option for you.